The chart at the right from the St. Louis Federal Reserve shows that banks have record low liquid assets, and that they continue to decline even though the recession is over.

These banks must maintain sufficient ALLL, or Allowance for Loan and Lease Losses, to cover their Nonperforming Loans. The chart shows that Nonperforming Loans almost equal the banks’ total assets, and loan losses are growing.

A recent Detroit News story reports that the US Treasury will give GMAC – General Motors Acceptance Corporation – an additional $3.5 billion of capital. This is on top of $13.4 billion already given to GMAC by US taxpayers to prevent GMAC from going bankrupt due to its bad housing loans.

Earlier this week the Treasury announced that it would loan unlimited amounts of money to Fannie Mae and Freddie Mac, removing the renewable cap on taxpayers transfers to the mortgage lenders.

The chart at the right shows that while credit card charge-offs are rising at Bank of America, the provisions for credit card losses are falling. The fall in provisions for credit card losses at Bank of America and the extremely low ALLL to capital ratio is due to another level of speculation by the banks. They are gambling that their attempt to create a false image of high earnings by minimizing the capital to cover losses will pay off in higher stock prices.

The risk to this gamble is that continuing credit card delinquency and more failed home and commercial mortgages will confront the financial system with another crisis of solvency. The banks are willing to take this risk because they continue to directly control the US Treasury and the Federal Reserve and indirectly control a majority in the US Congress. They believe another bailout is a lock.

This control was challenged only once when a storm of opposition to the first bailout by an enraged public resulted in a No vote in Congress. As documented by Michael Moore in his new film, Capitalism, A Love Story, this vote was reversed through a carefully orchestrated campaign in the media and behind closed doors to thwart the public’s will. Treasury Secretary Henry Paulson threatened Congress with the imposition of martial law if the vote were not reversed.

If the first vote of Congress to deny the bailout had stuck, these insolvent banks would have been liquidated and their owners would have taken the losses instead of the US taxpayers. This was the procedure used during and after the depression to deal with banks that were ruined due to either stupidity or corruption. Now that the banks have so much power financially and politically their owners can use the Congress to make the American people cover their losses.